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Looking to Invest in North Orange County, CA
Hi,
We're a couple in north Orange County and would like to invest in a rental property closed to our primary residence. We've been reading a few Real Estate Investing books and hoping to get some advises/guidance here.
About us:
- In our early 40's, primary residence is a SFH we purchased for 750K with 20% down, now value at 1.25 million, with mortgage balance of 425K (refinance to 15 years fixed 1.99% in September 2021). Monthly payment $4,000 (including property tax and insurance).
- Our W2 income is about 480K, both working full time M-F.
- Hubby owns a consulting business, income 65K-100k.
- We have about 1 million in our 401K, 403b, and other retirement accounts (95% Vanguard index funds). And 800K home equity as above.
- I also have a pension plan through my work.
- We maximize our 401K, 403b, HSA, Roth IRA, and 457 accounts.
- We have 230K in high yield saving account, and we're saving around additional 8K/month from our net income.
- We have 2 children (ages 9 and 11). We do not have any other debts (2 cars 2012 and 2020 with no payments).
- Our credit scores are both >800.
My hubby and I have many family members and friends in other states who invest in rental properties. We have been playing it safe but really would like to start investing in Rental properties as another source of passive income and to start building for our children. Given our circumstances, would you recommend investing in another single home or a multi-unit (like a triplex or fourplex)? We're hoping to only use our 230K saving and not borrow from 401K or home equity for a down payment?
Also appreciate any investor broker or lender tips! Thank you.
Hi to a fellow Katie and congrats on jumping in! Sounds like you're in great shape to dive into the real estate world. I don't know Orange County too well to answer your questions, so will just add a few other tidbits as food for thought. You may want to consider asset protection for the consulting business and/or real estate by holding in appropriate entities, especially depending on how risky the consulting is and how many assets are attributed to that business. Additionally, if you don't have an estate plan in place yet, you'll want to get that in order, especially since you have minor children. Probate in California is no joke and can be incredibly expensive. Finally, two other things that you can look into or talk with your CPA to see if there could be any advantages to you (you may be phased out due to income for some) is the Section 199A pass-through deduction, which would require you to start tracking hours spent on your real estate enterprise, as well as the possible CA SALT tax workaround in case you were interested in deducting more than the $10k state and local tax cap for the next few years.
If you need referrals for professionals in any of these areas in the San Diego area, feel free to reach out. Best of luck!
*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
Hey Katie, I live in the Yorba Linda area. Sounds like you're in good financial shape to look for a property. The first thing you'll want to do is run the numbers with your lender(if you need a local referral let me know) to see what price points you'll be able to look at and then you can also start seeing what mortgage payments are going to look for the two different property types this will allow you to get down to analyzing deals. I will say it will be hard in North OC to find something unless the downpayment is higher but depending on how far you want to go you can look at places in Corona, Norco, Murrieta, etc and the price points drop by $300,000+ dollars. Deals tend to make more sense out there. If you are looking for cash flow typically multiple unit properties are going to be your best bet but might require a little more work up front and there are not a lot of them around the area to scoop up right now. If you are looking for cash flow immediately them short term rentals might be something you could also look into in places like Big Bear but appreciation isn't as good up there as it is down here. Either way right now with inventory so low patience will also be key in waiting for the right deal to jump on. Hope that helps!
Quote from @Katie Balatbat:Thank you! We have the consulting business under corporation since 2018. We also used to have a LLC when we accidentally became landlord when renting out our first home (2012-2021) until we sold that property in 2021 (bought at peak in 2007, did not make much $). The $ was then used to purchase VTSAX at that time (wasn't the smartest move). That LLC was closed.
Hi to a fellow Katie and congrats on jumping in! Sounds like you're in great shape to dive into the real estate world. I don't know Orange County too well to answer your questions, so will just add a few other tidbits as food for thought. You may want to consider asset protection for the consulting business and/or real estate by holding in appropriate entities, especially depending on how risky the consulting is and how many assets are attributed to that business. Additionally, if you don't have an estate plan in place yet, you'll want to get that in order, especially since you have minor children. Probate in California is no joke and can be incredibly expensive. Finally, two other things that you can look into or talk with your CPA to see if there could be any advantages to you (you may be phased out due to income for some) is the Section 199A pass-through deduction, which would require you to start tracking hours spent on your real estate enterprise, as well as the possible CA SALT tax workaround in case you were interested in deducting more than the $10k state and local tax cap for the next few years.
If you need referrals for professionals in any of these areas in the San Diego area, feel free to reach out. Best of luck!
*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
We so have a living trust, will, and advance directives (for medical decision), established in January 2020.
We plan to eventually to open another LLC for each rental property.
We do not mind saving more (average $8k/month from net income) for another year or so to get to a bigger down payment. We're in no rush but want to do proper preparation.
Quote from @Josh Alexander:Thank you!
Hey Katie, I live in the Yorba Linda area. Sounds like you're in good financial shape to look for a property. The first thing you'll want to do is run the numbers with your lender(if you need a local referral let me know) to see what price points you'll be able to look at and then you can also start seeing what mortgage payments are going to look for the two different property types this will allow you to get down to analyzing deals. I will say it will be hard in North OC to find something unless the downpayment is higher but depending on how far you want to go you can look at places in Corona, Norco, Murrieta, etc and the price points drop by $300,000+ dollars. Deals tend to make more sense out there. If you are looking for cash flow typically multiple unit properties are going to be your best bet but might require a little more work up front and there are not a lot of them around the area to scoop up right now. If you are looking for cash flow immediately them short term rentals might be something you could also look into in places like Big Bear but appreciation isn't as good up there as it is down here. Either way right now with inventory so low patience will also be key in waiting for the right deal to jump on. Hope that helps!
We accidentally became landlord when renting out our first home in Inland Empire (2012-2021) until we sold that property in 2021 (bought at peak in 2007, did not make much $). The $ was then used to purchase VTSAX at that time (wasn't the smartest move).
This time, we want to become "intentional landlord" and not "accidental landlord." We also want to invest closer to home. We do not mind saving more (average $8k/month from net income) for another year or so to get to a bigger down payment. We're in no rush but want to do proper preparation.
We're also not handy people so we're looking for properties that do not a total gut down or too much work.
Quote from @Katie Tran:
Hi,
We're a couple in north Orange County and would like to invest in a rental property closed to our primary residence. We've been reading a few Real Estate Investing books and hoping to get some advises/guidance here.
About us:- In our early 40's, primary residence is a SFH we purchased for 750K with 20% down, now value at 1.25 million, with mortgage balance of 425K (refinance to 15 years fixed 1.99% in September 2021). Monthly payment $4,000 (including property tax and insurance).
- Our W2 income is about 480K, both working full time M-F.
- Hubby owns a consulting business, income 65K-100k.
- We have about 1 million in our 401K, 403b, and other retirement accounts (95% Vanguard index funds). And 800K home equity as above.
- I also have a pension plan through my work.
- We maximize our 401K, 403b, HSA, Roth IRA, and 457 accounts.
- We have 230K in high yield saving account, and we're saving around additional 8K/month from our net income.
- We have 2 children (ages 9 and 11). We do not have any other debts (2 cars 2012 and 2020 with no payments).
- Our credit scores are both >800.
My hubby and I have many family members and friends in other states who invest in rental properties. We have been playing it safe but really would like to start investing in Rental properties as another source of passive income and to start building for our children. Given our circumstances, would you recommend investing in another single home or a multi-unit (like a triplex or fourplex)? We're hoping to only use our 230K saving and not borrow from 401K or home equity for a down payment?
Also appreciate any investor broker or lender tips! Thank you.
Small Multifamily then bump up from there/that first one will be your guide to getting more and better deals. One leads to the next and to the next.. You need a stepping stone in the realm of investing and with your financial position the best move would be a SMF. The additional option would be to get that small multifamily and then build an ADU on it for maximizing cashflow.
-
Real Estate Agent Ca (#01968986)
- The McKernan Group
Quote from @Katie Tran:
Quote from @Josh Alexander:Thank you!
Hey Katie, I live in the Yorba Linda area. Sounds like you're in good financial shape to look for a property. The first thing you'll want to do is run the numbers with your lender(if you need a local referral let me know) to see what price points you'll be able to look at and then you can also start seeing what mortgage payments are going to look for the two different property types this will allow you to get down to analyzing deals. I will say it will be hard in North OC to find something unless the downpayment is higher but depending on how far you want to go you can look at places in Corona, Norco, Murrieta, etc and the price points drop by $300,000+ dollars. Deals tend to make more sense out there. If you are looking for cash flow typically multiple unit properties are going to be your best bet but might require a little more work up front and there are not a lot of them around the area to scoop up right now. If you are looking for cash flow immediately them short term rentals might be something you could also look into in places like Big Bear but appreciation isn't as good up there as it is down here. Either way right now with inventory so low patience will also be key in waiting for the right deal to jump on. Hope that helps!
We accidentally became landlord when renting out our first home in Inland Empire (2012-2021) until we sold that property in 2021 (bought at peak in 2007, did not make much $). The $ was then used to purchase VTSAX at that time (wasn't the smartest move).
This time, we want to become "intentional landlord" and not "accidental landlord." We also want to invest closer to home. We do not mind saving more (average $8k/month from net income) for another year or so to get to a bigger down payment. We're in no rush but want to do proper preparation.
We're also not handy people so we're looking for properties that do not a total gut down or too much work.
Do you have cities you are thinking about specifically yet or still flexible with the areas around north OC/parts of Riverside?
Quote from @Josh Alexander:@ Josh- we're thinking of more central OC like Anaheim, Buena Park, Cypress, Garden Grove, Westminster, etc. Definitely no Inland Empire (Riverside, Corona, Moreno Valley) at this time, maybe in the future at later deals. Hoping to get into a small multifamily property (duplex, triplex, or fourplex) that may require some work but not too extensive. I know a good property management company in the area that help several of my friends and neighbors with their rental properties. Thank you!
Quote from @Katie Tran:
Quote from @Josh Alexander:Thank you!
Hey Katie, I live in the Yorba Linda area. Sounds like you're in good financial shape to look for a property. The first thing you'll want to do is run the numbers with your lender(if you need a local referral let me know) to see what price points you'll be able to look at and then you can also start seeing what mortgage payments are going to look for the two different property types this will allow you to get down to analyzing deals. I will say it will be hard in North OC to find something unless the downpayment is higher but depending on how far you want to go you can look at places in Corona, Norco, Murrieta, etc and the price points drop by $300,000+ dollars. Deals tend to make more sense out there. If you are looking for cash flow typically multiple unit properties are going to be your best bet but might require a little more work up front and there are not a lot of them around the area to scoop up right now. If you are looking for cash flow immediately them short term rentals might be something you could also look into in places like Big Bear but appreciation isn't as good up there as it is down here. Either way right now with inventory so low patience will also be key in waiting for the right deal to jump on. Hope that helps!
We accidentally became landlord when renting out our first home in Inland Empire (2012-2021) until we sold that property in 2021 (bought at peak in 2007, did not make much $). The $ was then used to purchase VTSAX at that time (wasn't the smartest move).
This time, we want to become "intentional landlord" and not "accidental landlord." We also want to invest closer to home. We do not mind saving more (average $8k/month from net income) for another year or so to get to a bigger down payment. We're in no rush but want to do proper preparation.
We're also not handy people so we're looking for properties that do not a total gut down or too much work.
Do you have cities you are thinking about specifically yet or still flexible with the areas around north OC/parts of Riverside?
Quote from @Peter Mckernan:@ Peter- Thank you! We're hoping to get into a small multifamily property (duplex, triplex, or fourplex) that may require some work but not too extensive, in areas like Anaheim, Buena Park, Cypress, Garden Grove, Westminster, etc. Appreciate any input/lead!
Quote from @Katie Tran:
Hi,
We're a couple in north Orange County and would like to invest in a rental property closed to our primary residence. We've been reading a few Real Estate Investing books and hoping to get some advises/guidance here.
About us:- In our early 40's, primary residence is a SFH we purchased for 750K with 20% down, now value at 1.25 million, with mortgage balance of 425K (refinance to 15 years fixed 1.99% in September 2021). Monthly payment $4,000 (including property tax and insurance).
- Our W2 income is about 480K, both working full time M-F.
- Hubby owns a consulting business, income 65K-100k.
- We have about 1 million in our 401K, 403b, and other retirement accounts (95% Vanguard index funds). And 800K home equity as above.
- I also have a pension plan through my work.
- We maximize our 401K, 403b, HSA, Roth IRA, and 457 accounts.
- We have 230K in high yield saving account, and we're saving around additional 8K/month from our net income.
- We have 2 children (ages 9 and 11). We do not have any other debts (2 cars 2012 and 2020 with no payments).
- Our credit scores are both >800.
My hubby and I have many family members and friends in other states who invest in rental properties. We have been playing it safe but really would like to start investing in Rental properties as another source of passive income and to start building for our children. Given our circumstances, would you recommend investing in another single home or a multi-unit (like a triplex or fourplex)? We're hoping to only use our 230K saving and not borrow from 401K or home equity for a down payment?
Also appreciate any investor broker or lender tips! Thank you.Small Multifamily then bump up from there/that first one will be your guide to getting more and better deals. One leads to the next and to the next.. You need a stepping stone in the realm of investing and with your financial position the best move would be a SMF. The additional option would be to get that small multifamily and then build an ADU on it for maximizing cashflow.
Hi Katie,
I live in LA County (Arcadia). I've been investing in multifamily for years and all our-of-state. I know you mentioned wanting to buy locally and that is always the first choice - when we have a choice. For me it makes no sense. We can far more outside of california when it comes to both cash flow and appreciation (those two together). The key is to know how to invest safely out of state. If interested, I can tell you more.
Would be really nice if you find a value add property with good potential for a an adu addition on the area .
Quote from @Katie Tran:
Quote from @Peter Mckernan:@ Peter- Thank you! We're hoping to get into a small multifamily property (duplex, triplex, or fourplex) that may require some work but not too extensive, in areas like Anaheim, Buena Park, Cypress, Garden Grove, Westminster, etc. Appreciate any input/lead!
Quote from @Katie Tran:
Hi,
We're a couple in north Orange County and would like to invest in a rental property closed to our primary residence. We've been reading a few Real Estate Investing books and hoping to get some advises/guidance here.
About us:- In our early 40's, primary residence is a SFH we purchased for 750K with 20% down, now value at 1.25 million, with mortgage balance of 425K (refinance to 15 years fixed 1.99% in September 2021). Monthly payment $4,000 (including property tax and insurance).
- Our W2 income is about 480K, both working full time M-F.
- Hubby owns a consulting business, income 65K-100k.
- We have about 1 million in our 401K, 403b, and other retirement accounts (95% Vanguard index funds). And 800K home equity as above.
- I also have a pension plan through my work.
- We maximize our 401K, 403b, HSA, Roth IRA, and 457 accounts.
- We have 230K in high yield saving account, and we're saving around additional 8K/month from our net income.
- We have 2 children (ages 9 and 11). We do not have any other debts (2 cars 2012 and 2020 with no payments).
- Our credit scores are both >800.
My hubby and I have many family members and friends in other states who invest in rental properties. We have been playing it safe but really would like to start investing in Rental properties as another source of passive income and to start building for our children. Given our circumstances, would you recommend investing in another single home or a multi-unit (like a triplex or fourplex)? We're hoping to only use our 230K saving and not borrow from 401K or home equity for a down payment?
Also appreciate any investor broker or lender tips! Thank you.Small Multifamily then bump up from there/that first one will be your guide to getting more and better deals. One leads to the next and to the next.. You need a stepping stone in the realm of investing and with your financial position the best move would be a SMF. The additional option would be to get that small multifamily and then build an ADU on it for maximizing cashflow.
If I come across anything I will for sure reach out!!
-
Real Estate Agent Ca (#01968986)
- The McKernan Group
Hi Katie,
You two are very good at saving and diversifying, great job! I think you are on the right track with purchasing more real estate as your next investment class. Purchasing for investment anywhere in California can be difficult right now. Orange County housing inventory is at all time historical lows. There also aren't too many properties out there that have a value add because buyers will pay top dollar for whatever comes on the market. Because of all this home values are staying high. With ~230k down at 25% ltv gets you a purchase price around 950k. There will be SFR available in the more inland areas of Anaheim, Fullerton, Santa Ana, and maybe parts of Orange. Your best chance at securing a multi family will mostly come through an off market deal. Happy to keep an eye out and let you know if anything interesting comes along either way.
The other option would be something out of state. If you have any interest in owning property in Oregon, Washington, Idaho, Nevada, or ??. Maybe you have family or someone to be your boots on the ground somewhere. Starting with a SFR is usually recommended, but if you can swing a 2-4 unit out of state with a good property manager, you should be fine and you won't have to break into your planned retirement accounts to do so.
Another thing to think about is the Post Tax monies that you put into your Roth Accounts. If you've had them for a long time, then most of your value is from growth anyway, you can take anything that you put into your Roth's out tax free (might have to be in for 3 years?) to boost your initial outlay, or to improve the properties, etc...
Quote from @Katie Tran:
Hi,
We're a couple in north Orange County and would like to invest in a rental property closed to our primary residence. We've been reading a few Real Estate Investing books and hoping to get some advises/guidance here.
About us:- In our early 40's, primary residence is a SFH we purchased for 750K with 20% down, now value at 1.25 million, with mortgage balance of 425K (refinance to 15 years fixed 1.99% in September 2021). Monthly payment $4,000 (including property tax and insurance).
- Our W2 income is about 480K, both working full time M-F.
- Hubby owns a consulting business, income 65K-100k.
- We have about 1 million in our 401K, 403b, and other retirement accounts (95% Vanguard index funds). And 800K home equity as above.
- I also have a pension plan through my work.
- We maximize our 401K, 403b, HSA, Roth IRA, and 457 accounts.
- We have 230K in high yield saving account, and we're saving around additional 8K/month from our net income.
- We have 2 children (ages 9 and 11). We do not have any other debts (2 cars 2012 and 2020 with no payments).
- Our credit scores are both >800.
My hubby and I have many family members and friends in other states who invest in rental properties. We have been playing it safe but really would like to start investing in Rental properties as another source of passive income and to start building for our children. Given our circumstances, would you recommend investing in another single home or a multi-unit (like a triplex or fourplex)? We're hoping to only use our 230K saving and not borrow from 401K or home equity for a down payment?
Also appreciate any investor broker or lender tips! Thank you.
Hi Katie. If you ever need a second opinion on your proforma/underwriting or need a market analysis on rents, let me know how I can help.
Best,
Quote from @Katie Tran:
Hi,
We're a couple in north Orange County and would like to invest in a rental property closed to our primary residence. We've been reading a few Real Estate Investing books and hoping to get some advises/guidance here.
About us:- In our early 40's, primary residence is a SFH we purchased for 750K with 20% down, now value at 1.25 million, with mortgage balance of 425K (refinance to 15 years fixed 1.99% in September 2021). Monthly payment $4,000 (including property tax and insurance).
- Our W2 income is about 480K, both working full time M-F.
- Hubby owns a consulting business, income 65K-100k.
- We have about 1 million in our 401K, 403b, and other retirement accounts (95% Vanguard index funds). And 800K home equity as above.
- I also have a pension plan through my work.
- We maximize our 401K, 403b, HSA, Roth IRA, and 457 accounts.
- We have 230K in high yield saving account, and we're saving around additional 8K/month from our net income.
- We have 2 children (ages 9 and 11). We do not have any other debts (2 cars 2012 and 2020 with no payments).
- Our credit scores are both >800.
My hubby and I have many family members and friends in other states who invest in rental properties. We have been playing it safe but really would like to start investing in Rental properties as another source of passive income and to start building for our children. Given our circumstances, would you recommend investing in another single home or a multi-unit (like a triplex or fourplex)? We're hoping to only use our 230K saving and not borrow from 401K or home equity for a down payment?
Also appreciate any investor broker or lender tips! Thank you.
Hi Katie, I wasn't sure where to start in SoCal either but what I've done is I bought a SFH with a detached garage in riverside county. Got permitting done to turn it into 3 units and it's now cash flowing every month $2.5K. The only way to cash flow in socal right now in single family buy and hold investing.
Thank you for everyone for your inputs. After talking to a few people here, I think we narrowed down to a small multifamily unit. We need to take a HELOC to couple with our savings for the 25-30% downpayment. The issue now is to find a property that will cash flow a little or at least break even (given this interest rate environment as we know the <5% is a thing in the past by now). We're ok with not making immediate $ as this is a long-term plan to buy and hold for 30 years to take advantage of appreciation, loan paydown, tax advantages, and possible increased rent in future. But we want to at least not in THE BIG RED every month.
The cities we narrowed down to: Long Beach, Huntington Beach, Cypress, Anaheim, Garden Grove, Westminster, Buena Park, Costa Mesa, etc.
We have submitted docs to a couple lenders. Hopefully we can find something workable. If not, there will always be more time to save more $.
Hello,
It's great to hear that you're considering real estate investment as a way to build passive income and secure your financial future. Based on your financial situation and goals, here are some considerations and recommendations:
Property Type: Given your strong financial position and experience with real estate appreciation, you have flexibility in choosing between a single-family home (SFH) and a multi-unit property like a triplex or fourplex. Here are some factors to consider:
- SFH: Easier management, typically lower upfront costs, and the potential for strong appreciation in Orange County.
- Multi-Unit Property: Greater potential for rental income from multiple units, but it may require more active management. It's a good option if you're looking to maximize rental income.
Down Payment: It's wise not to borrow from your 401K or home equity if you can avoid it. You mentioned having $230,000 in savings, which is a substantial down payment. Before proceeding, ensure you have a comfortable cash reserve for unexpected property expenses and maintenance.
Property Management: Decide whether you want to manage the property yourself or hire a property management company. Managing a multi-unit property can be more complex, so consider your level of involvement.
Have you received any offers for a lower down payment than 25%? Typically the standard is 20% especially with your credit. What have you received for a potential HELOC?.
Feel free to send me a DM and I can take a look at a property with you.
Thanks,
*
-
Lender
- (919) 321-1156
- https://micromanagemortgage.com
- [email protected]
Hello @Katie Tran,
I agree completely with your sentiment regarding the importance of investing safely. However, California may not be the most favorable state for investment due to various reasons such as rent control, anti-landlord legislation, high costs, and high taxes.
In this post, I will provide a straightforward process for selecting a city where:
- Rents outpace inflation: Inflation consistently erodes the purchasing power of a fixed amount of money. For instance, if the inflation rate is 5%, what you can buy today for $100 will cost $155 in 10 years. If rents fail to pace with the cost of living, your financial independence will be short-lived.
- Persistent: Your rental income will last a long time, you will not outlive your income.
What are the consequences of buying in a city where rental rates do not outpace inflation?
An example will illustrate the problem. Suppose you purchase a property with an initial cash flow of $1,000 per month. The rent growth rate is assumed to be 2%, which is a common growth rate, and the inflation rate is 5%. The table below lists inflation-adjusted purchasing power for the first ten years.
After ten years, $1,000 will only be able to buy 61% (100% - 39%) of what it can buy today. So, if you buy in any city where rents do not outpace inflation, no matter how many properties you own, you will soon be forced back to work.
What causes prices and rents to rise or fall?
Supply and Demand
In real estate, prices and rents are determined by the imbalance between the number of buyers and sellers.
- When there are more sellers than buyers, prices decline until there is a rough balance between the number of buyers and sellers.
- When the number of buyers exceeds the number of sellers, prices increase until there is a rough balance between the number of buyers and sellers.
Rents follow prices.
- Higher prices reduce the number of people who can purchase, increasing demand for rental properties and increasing rents.
- Lower prices enable more people to purchase, decreasing demand for rental properties and decreasing rents.
What determines demand?
Population Change
Prices and rents only rise significantly if there is sustained and significant population growth. This is our first city selection requirement:
✅ Significant and sustained population growth.
Jobs
The number one reason people move to a city is jobs. However, all private sector jobs are temporary. The average lifespan of a company is about 10 years, an S&P 500 company is only 18 years. Unless new companies move in and create replacement jobs, only low-paying service sector jobs will remain. As higher-paying jobs disappear, incomes in the area decline. Cities are funded by property taxes and sales taxes. When the area income falls, property taxes and sales taxes fall. Cities are then forced to cut back on services. As services are reduced, this leads to increased crime rates and lower-quality schools, which in turn causes more people to leave.
What are the requirements for a city to attract new employers?
✅ Low operating costs
✅ Low crime rate
✅ Low risk of a natural disaster
✅ Sufficient population to have economic stability, major highways, and a major airport. This usually requires a population >1M. Smaller cities tend to be dependent on a single company or market sector.
✅ No rent control of any kind. Rent control is a strong indicator of an intrusive government.
City Selection Process
Begin by evaluating cities with a metro population of more than one million. This is the easiest criterion to apply and will reduce the number of cities to be evaluated. After this, apply additional elimination criteria in the order from the easiest to the most time-intensive. This will save time and increase efficiency.
- Cities with a metro population >1M. Wikipedia
- Significant and sustained population growth. Wikipedia
- Low crime rate - Never invest in any city on Neighborhood Scout’s 100 most dangerous cities list.
- Low risk of a natural disaster - Homeowners insurance rates are a good indicator of the potential for a natural disaster to occur. The higher the rate, the higher the probability of a natural disaster. Insurance - ValuePenguin
- Low operating costs - The two most significant operating costs for an investor are property taxes and insurance.
- Property tax rates: State Property Tax Rates - Rocket Mortgage
- Insurance rates: Insurance - ValuePenguin
- No rent control of any kind: Google search
The result is a short list of potential candidate cities. The next selection/elimination criteria is an experienced local investment team.
Experienced Local Investment Team
Why do you need a local investment team? Everything you learn from podcasts, books, seminars, and websites is general knowledge. But you will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is an investment team.
Also, an experienced local investment team already has the skills, processes, expertise, and resources you need to identify, validate, renovate, and manage properties, saving you time, money, and risk.
Working with an investment team usually does not cost more. For instance, we have delivered over 480 properties and charged our clients a fee on only four or five of them, and only in exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.
By working with an investment team, you also receive a master class on real-world investment training at no cost to you.
Quote from @Katie Tran:
Thank you for everyone for your inputs. After talking to a few people here, I think we narrowed down to a small multifamily unit. We need to take a HELOC to couple with our savings for the 25-30% downpayment. The issue now is to find a property that will cash flow a little or at least break even (given this interest rate environment as we know the <5% is a thing in the past by now). We're ok with not making immediate $ as this is a long-term plan to buy and hold for 30 years to take advantage of appreciation, loan paydown, tax advantages, and possible increased rent in future. But we want to at least not in THE BIG RED every month.
The cities we narrowed down to: Long Beach, Huntington Beach, Cypress, Anaheim, Garden Grove, Westminster, Buena Park, Costa Mesa, etc.
We have submitted docs to a couple lenders. Hopefully we can find something workable. If not, there will always be more time to save more $.
You can get cash flowing properties pretty quickly, it is a matter of buying, ARV, and value add. You can cashflow in about 3 years or less if you bought an on-market deal too (not saying that is the best, but most areas are good to get 8-10% rent bumps a year). This is not a fully built out case for someone just getting into it, but you and everyone else these days have to be a little creative to get a deal done unless they are willing to put significant money into the deal for work etc. There is always the patience of real estate catching up!
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Real Estate Agent Ca (#01968986)
- The McKernan Group
@Katie Tran
Katie, first off, awesome stats. And I envy your eagerness to make the move to REI with those stats.
I have read all the responses thus far and they are all well intentioned, just as mine is. I think the other posters responses are great and work for many others on this forum.
HOWEVER, based on your stats alone, I would reconsider REI. Your savings rate is great. Your income is very good. You age, experience, and family make up is what drives my opinion. I feel, unless you truly detest your current work/life balance, or it has been you dream to be a part of REI, you will find it very difficult, if not impossible to build greater wealth from your position without significant risks and distribution to the stable family life you likely already have.
You are not going to make compatible money from REI in the next few years. It will likely take 5 or more years of aggressive and intentional investing. This is get you close to 50 years old.
There will be a learning curve to achieve maximum efficiency. Or else you can extend that 5 year time line to 10 years. This will put you into your 50s.
If you feel it will be a slow transition and you plane to concurrently carry your current source of income, that will eliminate you free time and add stress to the family dynamics and your health.
In the next several years, the most crucial child development years in my opinion, you will not be there for your kids ... Not if you are investing to replace your income. By the time you will be able to get into a stable routine, you kids will begin to outgrow you.
That last one is what weighs most in my decision making. I would not be writing this if you told me you were making $200K/ year and have a few 401Ks, a 457B, and under $200 in your savings. Or if you were childless. But that is not the case. You guys are making good money. You have 2 young kids. You have a sizable savings and retirement accounts.
But then if you really hate your current source of income, by all means, take the plunge. To be able to making the type of money you are, I will take the chance and say that you have the altitude to absorb the nuances of REI quickly. This does not include your mechanical altitude, but I do not know those details base only on your post.
This is only an opinion. If you chose to pursue REI, go for it!! Seize opportunities and give it 100% effort. That's the only control you have, so do not waste it. You control effort. Can it be done, YES. Will it be easy, NO!.
Quote from @Sam Yin:Thank you so much! We actually both enjoy our job (despite some scheduling conflicts once in a while). We do not look to replace our income at all. We just want to diversify and have 1-2 rentals to park our savings in and as a cushion, in addition to our retirement savings (401k, pension, etc.) We also plan to leave that for the children (if it works out). So this is definitely not full time investing. Would you still recommend to buy and hold in a decent location so tenants can pay some of the mortgages while equity is building up over the next 20 years? Again, thank you. Our children are always our priority.
@Katie Tran
Katie, first off, awesome stats. And I envy your eagerness to make the move to REI with those stats.
I have read all the responses thus far and they are all well intentioned, just as mine is. I think the other posters responses are great and work for many others on this forum.
HOWEVER, based on your stats alone, I would reconsider REI. Your savings rate is great. Your income is very good. You age, experience, and family make up is what drives my opinion. I feel, unless you truly detest your current work/life balance, or it has been you dream to be a part of REI, you will find it very difficult, if not impossible to build greater wealth from your position without significant risks and distribution to the stable family life you likely already have.
You are not going to make compatible money from REI in the next few years. It will likely take 5 or more years of aggressive and intentional investing. This is get you close to 50 years old.
There will be a learning curve to achieve maximum efficiency. Or else you can extend that 5 year time line to 10 years. This will put you into your 50s.
If you feel it will be a slow transition and you plane to concurrently carry your current source of income, that will eliminate you free time and add stress to the family dynamics and your health.
In the next several years, the most crucial child development years in my opinion, you will not be there for your kids ... Not if you are investing to replace your income. By the time you will be able to get into a stable routine, you kids will begin to outgrow you.
That last one is what weighs most in my decision making. I would not be writing this if you told me you were making $200K/ year and have a few 401Ks, a 457B, and under $200 in your savings. Or if you were childless. But that is not the case. You guys are making good money. You have 2 young kids. You have a sizable savings and retirement accounts.
But then if you really hate your current source of income, by all means, take the plunge. To be able to making the type of money you are, I will take the chance and say that you have the altitude to absorb the nuances of REI quickly. This does not include your mechanical altitude, but I do not know those details base only on your post.
This is only an opinion. If you chose to pursue REI, go for it!! Seize opportunities and give it 100% effort. That's the only control you have, so do not waste it. You control effort. Can it be done, YES. Will it be easy, NO!.
Quote from @Katie Tran:
Quote from @Sam Yin:Thank you so much! We actually both enjoy our job (despite some scheduling conflicts once in a while). We do not look to replace our income at all. We just want to diversify and have 1-2 rentals to park our savings in and as a cushion, in addition to our retirement savings (401k, pension, etc.) We also plan to leave that for the children (if it works out). So this is definitely not full time investing. Would you still recommend to buy and hold in a decent location so tenants can pay some of the mortgages while equity is building up over the next 20 years? Again, thank you. Our children are always our priority.
@Katie Tran
Katie, first off, awesome stats. And I envy your eagerness to make the move to REI with those stats.
I have read all the responses thus far and they are all well intentioned, just as mine is. I think the other posters responses are great and work for many others on this forum.
HOWEVER, based on your stats alone, I would reconsider REI. Your savings rate is great. Your income is very good. You age, experience, and family make up is what drives my opinion. I feel, unless you truly detest your current work/life balance, or it has been you dream to be a part of REI, you will find it very difficult, if not impossible to build greater wealth from your position without significant risks and distribution to the stable family life you likely already have.
You are not going to make compatible money from REI in the next few years. It will likely take 5 or more years of aggressive and intentional investing. This is get you close to 50 years old.
There will be a learning curve to achieve maximum efficiency. Or else you can extend that 5 year time line to 10 years. This will put you into your 50s.
If you feel it will be a slow transition and you plane to concurrently carry your current source of income, that will eliminate you free time and add stress to the family dynamics and your health.
In the next several years, the most crucial child development years in my opinion, you will not be there for your kids ... Not if you are investing to replace your income. By the time you will be able to get into a stable routine, you kids will begin to outgrow you.
That last one is what weighs most in my decision making. I would not be writing this if you told me you were making $200K/ year and have a few 401Ks, a 457B, and under $200 in your savings. Or if you were childless. But that is not the case. You guys are making good money. You have 2 young kids. You have a sizable savings and retirement accounts.
But then if you really hate your current source of income, by all means, take the plunge. To be able to making the type of money you are, I will take the chance and say that you have the altitude to absorb the nuances of REI quickly. This does not include your mechanical altitude, but I do not know those details base only on your post.
This is only an opinion. If you chose to pursue REI, go for it!! Seize opportunities and give it 100% effort. That's the only control you have, so do not waste it. You control effort. Can it be done, YES. Will it be easy, NO!.
If that is the case, I would definitely do it. You have enough of a stable income base that you can justify buying in a luxury location and wait for the appreciation. This is one of those rare opportunities where you can buy hold in a prime grade. A location like beachfront property or a desirable class A neighborhood. A long-term hold in those locations will net you great profits decades later.
so much so that you'll be able to extract the equity when you need it and not be worried too much about the capital gains because the gains are so great.
